Long-time CG&G readers know that I don’t usually respond to comments on my posts. The biggest reason is time. The second biggest reason is that I see comments as an opportunity for members of the CG&G community to discuss among themselves what I've written. I read every comment; I just don't respond very often.
But the amount of misunderstanding that some commenters had about my original post
on the new proposal for yet another dollar coin, not to mention the obvious emotion involved in some of the responses, convinced me that this time I should provide some additional information and correct some misperceptions.
First, I really have warm feelings for the dollar coin and, from a federal budget perspective, think it's a good idea. The point I was making, however, was that it's more than ironic that tea partiers in the House who demand unyielding obeisance to the market, want to keep the government as far way from the private sector as possible, and especially don't want Washington ever to impose additional costs on business are proposing something that would do all of these things.
Now, for those comments...
To Jim A who said "it simply isn't true that there was a large stock of Susan B's that made banks uninterested in ordering Sacageweas"...Sorry but you're misreading dollar coin history. The Mint did, in fact, produce a small amount of Susan Bs in 1999, but that was only to provide a bridge for -- as you said -- mostly the U.S. Postal Service until the Golden Dollar would be available. In fact, the banks had vaults full of them and, as they told the Mint officials in meetings I attended, were completely uninterested in ordering any other dollar coins. We actually tried to talk the banks into sending the Susan Bs back to the Federal Reserve so that they only had Golden Dollars, but they refused because they were going to have to pay for the shipping.
If you asked for a roll of dollar coins at a bank when the Golden Dollar was introduced, you had no way of knowing how many Golden Dollars vs. Susan Bs you would get. In fact, at first even the Fed, which had a huge stockpile of Susan Bs. refused to guarantee that it would only ship Golden Dollars to the banks when they ordered the coins.
To Treasury Geek who took issue with my statement that "a dollar coin actually costs the government and taxpayers a great deal if it's not actually used"...You only have part of the equation. You're right, of course, that the government makes a great deal of money when a coin is monetarized because it costs way less to manufacture than the $1 it charges but you're wrong to think the money is simply pocketed and reduces the deficit.
Coins are actually purchased from the Mint by the Federal Reserve, which pays full price (in this case, $1) for the coins and then ships them when banks want more (The distribution is way more detailed but this is a good oversimplification). Yes, the Mint gets its money from the Fed, but the Fed only gets paid if banks want them; if the coins sit in the Fed’s vaults because no one wants them, the fed’s profits decrease. That may not seem like a big deal, but the Fed transfers a large percentage of its profits to the Treasury every year so lower profits mean less is transferred and the deficit is higher than it otherwise would be. That means higher interest payments and greater taxpayer costs.
A quick side story. Based solely on its experience with the Susan B, the Fed initially decided to order only a relatively small number of Golden Dollars. The director of the Mint, Philip Diehl, one of the most dedicated public servants I have ever met (and also my client at the time), was able to convince the Fed that it was seriously underestimating the demand and it agreed to increase its order by about 300 percent. When demand turned out to be much lower than anticipated, the Fed was stuck with them.
To Greg Ransom (By the way, welcome back to CG&G), who suggested that all coins be downsized and existing coins be withdrawn...Not only would the cost of withdrawing coins have an enormous cost that would likely outweigh any budget benefits, but we know from direct experience with the Susan B (which was constantly used in place of a quarter) that there's no better way to create consumer and retailer anger than to have two coins of the same size. Now if you want to make a number of coin collectors very happy and wealthy by making some existing coins very rare by withdrawing the existing coins from circulation...
To John Bohn and everyone else who said all we have to do is eliminate the dollar bill so retailers and everyone else would have no choice but to use the coin...Are you really suggesting that the federal government mandate that merchants incur an additional cost so that its own deficit would be smaller? Remember...it costs a great deal more to a retailer to have coins instead of dollar bills delivered because of the additional weight. The amazing thing to me is that anyone who claims tea party credentials, as the sponsors of the legislation that would create the new dollar coin do, would even consider promoting something that businesses would likely consider the equivalent of a new federal tax.
To Yet Another Budget Wonk (the one whose comment is titled "I have no idea how much Crane")...Creating a new dollar coin absolutely would be a corporate subsidy because the government would be mandated to make a purchase that it would not otherwise make and these would be sales of copper that otherwise would not occur. The increased demand for copper by the government would also likely drive up the price for all buyers.
Your calculations also completely underestimate the number of dollar coins that would be minted. Yes, 350 million $1 coins were produced in 2010, but that was just to satisfy the anemic demand by collectors for the presidential dollar coins, the USPS, and the few transit systems around the country. According to the U.S. Treasury, there are "billions" of dollar bills in circulation so if, as the legislation requires, they were withdrawn, the production of the $1 coins would have to increase dramatically.
Is there any doubt that copper mine owners would be the huge beneficiaries when a market that barely existed suddenly grew to a size that previously was unimaginable because it was mandated by law? Does anyone think it's a coincidence that the primary sponsor of this legislation is from Arizona, where much of the copper industry is located, or that the honorary chairman of the Dollar Coin Alliance is a former House member from that same state?
Finally, to I, Kahn O'Clast (great name by the way) and Nicholas Weaver who both said that the Golden Dollar was unpopular because it was the same size as a quarter...not so. The law creating the Golden Dollar mandated that it have a number of features that actually made it remarkably easy to distinguish from the quarter. The color was the most obvious, but the most important was that it had a raised smooth edge instead of the quarter's ribbed edge. We actually did tests with people who were visually impaired and they had no trouble telling the difference between the two in a number of different scenarios (in pockets, lots of coins at the same time, etc.).
As I mentioned in my original post, the Golden Dollar actually was enormously popular with consumers when it was introduced. The problem was that they couldn't get it because retailers, banks, vending machine operators, and others businesses hated it and refused to carry it.
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